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Mon 12 Dec 2011 09:59 AM

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Personal loans boost Bahrain bank lending

Lending grows at fastest pace in three years in sign of recovery from political upheaval

Personal loans boost Bahrain bank lending
Qatari investor stock exchange

Bahrain bank lending is growing at the fastest pace in three
years as the economy recovers from the political unrest that hurt the country’s
image
as a regional financial center.

Overall bank lending rose 12.9 percent in the first 10
months through October compared with 3.5 percent in the first half, according
to data on the Bahrain central bank website. Personal loans increased 21
percent to BD2.1bn ($5.6bn) and business loans gained 11 percent to BD4.1bn,
the data shows.

“It’s broadly encouraging,” Liz Martins, a Dubai-based
senior economist for the Middle East at British bank HSBC Holdings, said in a
Dec 6 interview. Still, “I would be more encouraged to see more growth in
business loans than in personal loans.”

Economic growth in the island kingdom slumped following
demonstrations by mostly Shiite protesters demanding a more representative
government and greater rights from the country’s Sunni Muslim rulers. At least
35 people died during rallies
that lasted a month and the subsequent government
crackdown. The unrest prompted the six Gulf Cooperation Council nations to send
a Saudi Arabian-led military force into Bahrain, home to the US Fifth Fleet,
and approve a $10bn aid package.

The Gulf state, rated two levels above junk grade at Standard
& Poor’s, saw its default risk more than double this year, hitting a high
of 413 on Nov 25 before falling to 382 on Dec. 9, according to data provider
CMA.

The arrival of the troops sent “a very strong signal” that
Bahrain’s ecosystem is not to be disturbed too widely, according to Florence
Eid, chief executive officer of Arabia Monitor, a London-based research firm.

Bahrain’s economy grew 2.4 percent in the third quarter from
a year earlier, the fastest pace in three quarters, according to the state
statistics office. Economic expansion had slumped to 1.1 percent in the three
months to June.

Steps taken by the government in the past months to calm the
situation have led to a recovery in Bahraini bond prices and diminished
political risk expectations, Sergey Dergachev, who helps manage $8.5bn of
emerging-market bonds at Union Investment Privatfonds in Frankfurt, said in a
Dec 5 email.

Bahrain sold $750m in seven-year Islamic bonds in November,
becoming the first Arab country hit with pro-democracy protests this year to
tap global bond markets. Central Bank Governor Rasheed al-Maraj said Nov 22 the
Gulf state has no plans to sell more debt this year.

The government raised salaries of civilian and military
personnel by as much as 36.5 percent, released political detainees, reinstated
many employees suspended from work on suspicion of participation in the protests,
and set up a committee to follow up recommendations of a fact-finding mission
ordered by the king to look into possible human rights abuses during the
February-March crackdown.

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Full-scale protests have stopped, though tensions persist,
with almost daily, rallies in Shiite villages that government troops respond to
with tear gas and rubber bullets. The opposition is urging followers on Twitter
to participate in Occupy Budaya Street on Dec 15 to demand the release of
political prisoners still in jail and the opening of the streets leading to the
former Pearl Roundabout, the epicenter of the rallies earlier this year.

In the first half of the year, there was a 20 percent
increase over 2010 in the number of commercial companies that have set up in
Bahrain, Sheikh Mohammed bin Essa Al Khalifa, Economic Development Board’s
chief executive officer, said last month at a ceremony marking the beginning of
the construction of a plant for German-based RMA, which makes equipment for
pipeline companies.

“Contrary to popular belief the growth in the formation of
start-ups and companies in Bahrain is still going strong,” he said.

Two companies have announced they are leaving Bahrain,
Credit Agricole, France’s second-largest bank by assets and Robeco, according
to figures provided by the Economic Development Board. Seven others, including
Australia’s AMP Capital Investors, have been licensed by the central bank this
year, the figures showed.

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